Bitcoin traders didn’t get the memo?
Don’t let the name cryptocurrency fool you. As far as the IRS is concerned, it’s not currency, it’s property. And, as property, it is subject to all the tax rules and regulations involving property — when and how it was it acquired, how and when was it disposed, gains, losses, etc. etc. Most importantly, as with property, taxable transactions must be accounted for and reported.
The IRS said so almost four years ago (Notice 2014-21), but because of a recent legal victory, the tax agency now has an enforcement roadmap leading to non-reporters, including those who may have thought that blockchain anonymity would provide cover from the taxman.
The IRS victory came against Coinbase, the largest custodian of virtual currency with over 20 million users. A federal judge ruled that the IRS could subpoena Coinbase records thus exposing the accounts of a majority of their users in the United States — customer names, Taxpayer ID numbers, birthdates, addresses, and account statements.
IRS subpoenas to other digital platforms will likely follow, as will IRS audit notices to many account holders. Criminal prosecutions for large tax evaders are likely. Many are scrambling to amend their tax returns for prior years.
The IRS is joined by two other federal agencies tightening the screws on cryptocurrencies. Both the Commodities Futures Trading Commission and the Securities and Exchange Commission have weighed in.
For its part the SEC has issued investor alerts calling out the risks of investments in virtual currencies. Last year it said initial coin offerings (ICOs) may be considered securities and just last February, the SEC issued 80 subpoenas to companies involved in issuing cryptocurrency.
In an exclusive interview with FOX Business, SEC Chairman Jay Clayton said investors should “think long and hard” before jumping into an initial coin offering, also known as an ICO. His warning comes as Telegram, an encrypted messaging app company, has broken the record for the biggest ICO campaign of all time.
Clayton and his team are examining whether a number of ICOs are violating securities laws, telling FOX Business: “Many ICOs and many of the ones I’ve looked at specifically are securities. For some reason, people selling ICOs seem to think they don’t need to follow either path; they seem to think they can have the best of both worlds — a limited disclosure from a private placement and public trading and public offering of the token. Abide by the law,” he warned. “We are watching. Others are watching.”
The rapid emergence of blockchain as an asset class has outrun the government’s ability to provide adequate rules and regulations, so much remains in the grey area – a difficult place for accounting professionals.
Enter the Accounting Blockchain Coalition (ABC) — an upstart, grass-roots group of industry leaders from accounting, law, tax, technology and higher education that have formed an alliance dedicated to educating businesses and organizations on accounting matters relevant to digital assets and distributed ledger technology, including blockchain. The group will publish best practices, disseminate materials and hold conferences.
Companies Still Not Ready for Lease Accounting
Most companies are still unprepared to adopt the new lease accounting standard, according to a new survey by Deloitte.
Nearly a fifth of survey respondents said that “implementing multiple new accounting standards, such as revenue recognition and current expected credit loss, simultaneously with lease accounting is proving difficult.”
Additionally the survey found that the new lease accounting standard won’t change their organizations’ lease versus buy strategies. Only 6.4 percent anticipate the new standard will change the balance in favor of buying equipment over leasing it.
The new standard will require organizations that lease assets (referred to as lessees) to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months.
Consistent with current Generally Accepted Accounting Principles (GAAP), the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease.
However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, the new standard will require both types of leases to be recognized on the balance sheet. It also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.
The accounting by organizations that own the assets leased by the lessee, also known as lessor accounting, will remain largely unchanged from current GAAP. However, the new standard contains some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014.
The Financial Accounting Standards Board has set the new standard to take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Thus, for a calendar year company, it would be effective January 1, 2019. For all other organizations, it will take effect for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.
Forty percent of the audits inspected by audit firm regulators had a least one finding indicating a serious problem. The survey, reported by industry trade publication Accounting Today, was conducted by the International Forum of Independent Audit Regulators (IFIAR), a group of national audit regulators including the Public Company Accounting Oversight Board (PCAOB) in the U.S. and the Financial Reporting Council in the U.K. The survey called out two of the highest problem areas:
Accounting estimates –– pertaining mostly to a failure by auditors to assess the reasonableness of assumptions by management, including considering any contrary or inconsistent evidence.
Internal controls testing –– most often involving the failure to obtain sufficient persuasive evidence to support a reliance on manual internal controls, and the failure to sufficiently test controls over, or the accuracy and completeness of, data or reports produced by management.
Although Revenue Recognition was less problematic in this latest survey, the IFIAR cautioned that the new revenue recognition accounting standards coming into effect “will continue to be an area of focus for the regulators.”
The volume of new accounting standards coupled with heighten scrutiny by regulatory agencies has put great pressure on all audit firms, according to Corey Fischer, Weinberg’s Firm Managing Partner. “It takes a higher commitment to people and process to maintain quality audit work and there is no way to hide poor performance,” he said. “U.S. audit firms are periodically reviewed by the Public Company Accounting Oversight Board (PCAOB) and its reports are publicly available for companies to review. We’ve worked hard to maintain a knowledgeable team of professionals at our firm, and we are proud of our deficient-free inspection reports.”
IRS Audits of Individuals Decline
The Internal Revenue Service reported that it audited 1 in about 160 individual tax returns in 2017. It is the 6th year in a row of decline and the lowest number since 2010 when the agency audited 1 in 90.
The IRS blames it on budget cuts which has reduced the number of staff at the agency saying it lost almost a third of its enforcement employees since 2010.
Though still audited more than other income levels, high-income households experienced the highest decline in audits.
From a revenue standpoint, filers earning over $1 million in tax year 2015 accounted for 28% of total income taxes, up from 25% in 2013, according to the latest available IRS data acquired by the Wall Street Journal. For 2015, filers earning between $200,000 and $500,000 paid nearly 21% of the total. Filers earning between $100,000 and $200,000 paid 22%.
IRS Audits of Big Corps Decline
According to a new report from Syracuse University’s Transactional Records Access Clearinghouse, the IRS audited only 54% of “corporate giants” — companies with over $20 billion in assets in fiscal year 2017. This compares to 76% in 2016 and 96% 2010. The IRS says the reduction is the result of budget cuts and staff cuts.
Bank Deregulation Coming
A perfect storm may be forming that will substantially ease post-crisis regulations for the banking industry. In spite of last minute snags, Congress appears likely to pass a financial deregulatory bill. At the same time and perhaps more importantly, new faces at all the bank regulatory agencies are coming into sync for a joined deregulatory effort.
When top lawyer at Cincinnati-based Fifth Third Bancorp, Jelena McWilliams succeeds Obama-appointee Martin Gruenberg as head of the Federal Deposit Insurance Corp. this month, “the FDIC, the Federal Reserve, and Office of the Comptroller of the Currency will be able to move ahead on a number of the Trump administration’s policy priorities,” reports the Wall Street Journal,” which listed the top policy issues that the three regulators are likely to tackle first:
*Volcker rule: Mandated by Dodd-Frank, the rule bars banks from speculative trading or buying into potentially risky investment funds. The five agencies that enforce the rule — the Fed, OCC, FDIC, Securities and Exchange Commission and Commodity Futures Trading Commission — took more than three years to agree on a rule. While there is general agreement it needs to be modified, all five will need to agree on specific changes. (Staff recommendations are expected by June.)
* Community Reinvestment Act: The 1970s law requires banks to invest in underserved communities near their headquarters and branches. Trump-appointed officials want to update the rules governing the law to recognize new types of loans and technologies that could help funnel funding to low-income groups.
* Small-dollar loans: Trump officials have said they want to encourage banks to offer loan products that compete with payday lenders. The OCC last year rescinded guidance that discouraged banks from offering short-term loans. The FDIC discourages state chartered banks from making those same types of loans.
* New banks: After the financial crisis, the number of new banks dwindled to a few a year, though efforts by the agency to encourage new applications have resulted in an uptick. Jelena McWilliams has said she wants to speed up new bank approvals.
* Financial technology: Trump officials want to make it easier for financial technology firms to enter the banking industry through specialized bank licenses, which would let them sell financial products across the country and bypass state-by-state licensing.
* Leveraged lending: Banking regulators told Congress last year that they were re-evaluating guidelines issued in 2013 that cracked down on leveraged lending, or loans to heavily indebted companies. The Fed and OCC have already signaled that they will give banks room to do more leveraged lending as long as they are appropriately capitalized. The FDIC hasn’t gone as far.
* Cybersecurity: The banking agencies issued a proposal in 2016 to impose cybersecurity standards on large banks and their service providers, but never moved forward with it. The regulators could decide to go a different route.
SOURCE: Wall Street Journal
“I Like Bankers”
What a difference a decade makes. Office of the Comptroller of the Currency chief Joseph Otting reportedly opened his meeting with the Independent Community Bankers of America gathered in Washington with, “I like bankers.”
A former banker himself 10 years earlier during the banking crisis, he told the group that his office “is doing its best to make life easier for them.”
Social networks do best when they tap into one of the seven deadly sins. Facebook is ego. Zynga is sloth. LinkedIn is greed.
— Reid Hoffman (Venture capitalist, Co-founder and Executive Chairman of LinkedIn)
At the end of the day, money is just a proxy for votes. That is what makes politics so vulnerable to social media.
— Sean Parker (Co-founder Napster, Plaxo, and was the First President of Facebook)
For me, privacy and security are really important. We think about it in terms of both: You can’t have privacy without security.
— Larry Page (Co-founded Google with Sergey Brin)
I think we’re seeing privacy diminish, not by laws… but by young people who don’t seem to value their privacy.
— Alan Dershowitz (Lawyer, constitutional scholar)
Advertising is very simple in a lot of ways. Advertisers go where the users go, and users are choosing to spend a lot more time online.
— Susan Wojcicki (CEO of YouTube)